Axis securities's research report on Tech MahindraQ3 performance was inline led by strong utilization (up 100 bps QoQ) and SG&A efficiencies. Cash flow from operations was strong at ~130% of EBITDA. However, revenue from Top 5 clients (down 12% QoQ) was weak due to: (1) cross currency, (2) weak seasonality of Q3 – Furloughs/ annual shutdowns, and (3) delay in decision making by clients. Telecom vertical (~51% share) to drag growth in H1CY16: Management shared that Telecom and Oil& Gas vertical remain challenging. Telecom has been impacted by consolidation in sector (delay in decision making), pressure in voice/data prices for telecom operators and change in spend patterns (towards video/entertainment/ modernization of networks). This would impact H1CY16.Given muted H1CY16 revenue, we expect TECHM to deliver ~13.5% revenue(down from 14%) CAGR. We build in 140 bpsmargin improvement forabove operating levers to play out in FY17/18. Our FY17E/ FY18E EPS stand at Rs 38/ Rs45. At 14x FY17E EPS, our TP stands atRs 526. Maintain HOLD.
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